Private Banks Lead In Bad Loan Write-Offs In FY26, Stay Ahead In Deposit Growth

Private sector banks wrote off a bigger share of their bad loans than public sector lenders in 2025-26, even as they maintained their lead in deposit growth during the June quarter.

The Reserve Bank of India's Financial Stability Report showed private banks wrote off 49.7% of their gross non-performing assets (NPAs), compared with 24.3% for public sector banks. Across the banking sector, lenders wrote off 33.2% of bad loans worth at least ₹1.28 lakh crore during the year.

The report also showed public sector banks continued to account for the largest share of stressed assets. They held 63.2% of the banking sector's gross NPAs as of 31 March, while accounting for 54.4% of total advances.

Deposit Growth Favours Private Banks

Quarterly business updates released by banks painted a different picture on deposits. Private sector banks reported 14.3% year-on-year growth in deposits during the June quarter, ahead of the 10.7% recorded by public sector lenders.

Credit growth, however, tilted slightly in favour of state-run banks. Their loan books expanded 16.4% from a year earlier, compared with 15.9% for private banks.

The slower pace of deposit mobilisation pushed the aggregate loan-to-deposit ratio for public sector banks to 81% from 77% a year ago. Private banks also saw their ratio rise, but only marginally, to 92% from 91%.

What Explains The Difference?

The higher write-off ratio at private banks comes even though public sector lenders continue to hold the majority of bad loans in the banking system. The report noted that write-offs remained an important tool for cleaning up bank balance sheets over the past six years, helping bring the gross NPA ratio down to a multi-decade low of 1.8%, or ₹3.85 lakh crore, by the end of March 2026. The ratio stood at 7.3% in March 2021 and 9.6% in March 2017.

Government data presented in the Lok Sabha showed public sector banks wrote off ₹5.81 lakh crore of loans between 2020-21 and 2024-25, compared with ₹3.09 lakh crore by private banks during the same period.

The June quarter numbers also highlighted a longer-term shift in banking. Private lenders have steadily increased their share of system deposits over the past decade, while public sector banks have gradually ceded ground, even as they continue to dominate the stock of bad loans.

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